4th February 2023 – (New York) A stronger-than-expected U.S. employment situation report weighed on markets Friday, causing both the U.S. stocks and oil prices to end noticeably lower.
The Dow Jones Industrial Average fell 127.93 points, or 0.38 percent, to 33,926.01. The S&P 500 sank 43.28 points, or 1.04 percent, to 4,136.48. The Nasdaq Composite Index shed 193.86 points, or 1.59 percent, to 12,006.95.
All the 11 primary S&P 500 sectors ended in red, with consumer discretionary and communication services down 3.11 percent and 2.22 percent, respectively, leading the slide.
Sentiment on the oil market was also dented with both the U.S. and the global crude benchmarks falling to their multi-week lows.
The West Texas Intermediate (WTI) for March delivery dropped 2.49 U.S. dollars, or 3.28 percent, to settle at 73.39 dollars a barrel on the New York Mercantile Exchange, the lowest finish since 4th January.
Brent crude for April delivery lost 2.23 dollars, or 2.71 percent, to close at 79.94 dollars a barrel on the London ICE Futures Exchange. That was the lowest settlement since 9th January.
The above market reactions came as a strong January U.S. jobs report prompted concerns over higher rates.
U.S. employers added 517,000 jobs in January, crushing estimates, the Labor Department reported on Friday. The huge job growth was compounded by a new low in the unemployment rate, which fell from 3.5 percent to 3.4 percent, a new 54-year low.
Neither the markets nor the Federal Reserve had anticipated such strong jobs data, Chris Low, chief economist at FHN Financial, said in a note on Friday. On the side of the Fed, “a super-tight labor market is the most compelling reason to keep hiking rates,” he said.
The Fed on Wednesday raised interest rates by 25 basis points, boosting the target range for the federal funds rate to 4.5-4.75 percent, as it continued its fight against inflation.
Fed Chair Jerome Powell said the Fed recognizes that the pace of inflation has eased, but “it would be very premature to declare victory.”
Powell said that with the labor market still tight, he expects “ongoing” increases to get monetary policy “sufficiently restrictive” to engineer a more balanced job market and bring down too-high inflation.
He referred to a “couple more” rate hikes, giving the impression that the cycle is drawing closer to the end.
“Markets are interpreting Wednesday’s FOMC (Federal Open Market Committee) meeting in a dovish light,” but “the Fed’s comments also contained plenty of more hawkish elements,” UBS analysts said on Friday.
The Fed remains concerned about the risk of doing too little, they noted, adding that “we continue to believe that markets have moved too far and too fast in pricing a dovish pivot in Fed policy.”
For the week, the Dow slipped nearly 0.2 percent, the S&P 500 gained 1.6 percent and the Nasdaq rose 3.3 percent.
For oil, the WTI logged a weekly drop of 7.9 percent, while Brent declined 7.5 percent for the week, based on the front-month contracts.